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Some Shariah-based banks have also faced a wide range of scams in recent times, denting the confidence of depositors.

Under such a situation, some banks, including Islami Bank Bangladesh Ltd (IBBL), the largest private bank in terms of deposits and investments, suffered from liquidity dearth resulting from fund withdrawals.

The liquidity crunch prompted the central bank in December to pump funds into a number of Islamic banks, including IBBL, to enable them to meet emergency financing needs and comply with regulatory requirements.

Zahid Hussain, a former lead economist of the World Bank’s Dhaka office, says that the economy has been sluggish in recent periods owing to the uncertainty at home and abroad. Still, Islamic banks have posted remarkable investment growth.

“The economy is facing an energy crisis, which hurt the production of industries. But the banks have disbursed a large amount of funds. This is interesting.”

Private sector credit growth in Bangladesh dropped to a 14-month low of 11.23 per cent in April owing to weak credit demand amid the current business slowdown.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, says that the large volume of investments at a time of crisis is not an indication of prudential banking.

The Shariah-compliant banks, which have recently faced loan irregularities, were considered well-reputed lenders, but their image has been tarnished, she said.

“Some Islamic banks even failed to ensure the required cash reserve ratio.”

The overall availability of excess liquidity at the Shariah-based banks and the Islamic banking windows of traditional lenders slipped to Tk 7,708 crore in March this year, from Tk 12,871 crore in December.

Their collective surplus liquidity stood at Tk 29,999 crore in March last year.

Both Hossain and Fahmida also urged the central bank to look into higher lending by the banks.